The Macro Show Replay | February 3, 2016

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02/02/16 05:15 PM EST

JT Taylor: A Magical Night For Marco Rubio

Last night's Iowa caucuses yielded more than a few interesting takeaways. Hillary Clinton was forced to flip six quartersto beat Bernie Sanders for the top spot, while Ted Cruz cruised to a first place finish in the GOP leaving Donald Trump scratching his head.

Here's a brief excerpt from Potomac Research Group Senior Analyst JT Taylor's Morning Bullets sent to institutional clients each morning.

"MARCO'S MAGIC NIGHT: The establishment has a heartbeat. And its name is Marco Rubio. In our opinion, Rubio pulled off the biggest victory of the night, stringing together an impressive close-third place showing led by late-breaking undecideds, as well a good share of evangelicals and new voters (thank you, Donald). Electability is the name of the game, and if Rubio can play in Iowa (they traditionally nominate the most conservative candidate who ends up fizzling out before the general election) then he'll play anywhere.

CAN RUBIO CONSOLIDATE ESTABLISHMENT LANE/MONEY -- AND FAST? With Bush, Kasich, and Christie all flagging, there will be growing pressure for them to step out of the race and throw their support behind Marco Rubio. New Hampshire may be an elimination round for Kasich and Christie so they must have a strong showing, but Bush still has enough cash to keep going for the long haul. It all depends on how New Hampshire shakes out -- calls for the also-rans to bow out will be far louder -- but the candidates will decide whether to exit on their own terms, not necessarily when it's most convenient for Rubio.

Republican moneyed circles will be anxious to see when Bush will drop out of the race. Big-ticket donors are practically throwing their money away out of loyalty to the family, and are waiting for the go-ahead to break. Just where will their dollars flow? Our money is on Rubio."

LNKD | Thoughts into the Print (4Q15)

KEY POINTS

CLOSED LONG, MULLING SHORT: Our Talent Solution TAM analysis suggests that the majority of LNKD’s opportunity is in the up-sell opportunity (vs. account volume). We believe that opportunity is largely driven by the selling environment, which is largely driven by macro; specifically where we are in the employment cycle. Our Macro team has been flagging that we are late cycle, and recently suggested that we may be heading into a recession as early as 2Q16. With that backdrop, we closed the long once we saw our tracker deteriorate more than seasonality alone would have suggested. Now, the question is whether that deceleration is a blip, or the beginning of a bigger trend. If the latter, our TS Economic Sensitivity analysis suggests the up-sell will get much tougher from here (see first table and note below for detail).

EXPECT LIGHT 2016 GUIDANCE: We suspect it's even less likely now that mgmt guides to street expectations if our tracker is correctly flagging a deteriorating selling environment. Consensus may have been asking for too much to begin with. The implicit assumption in consensus Talent Solution revenues estimates is calling for an acceleration in ARPA, which would be a challenge even if the selling environment wasn’t deteriorating as our tracker suggests. Futher, consensus is assuming accelerating growth in LNKD's other two segments, meaning any upside from both Sales Navigator and the dissipating Display headwind appear to be captured in estimates. Further, Fx remains a headwind YTD, which we expect to be top of mind for this mgmt team since FX was the largest source of its guidance cut last year.

BUT CAN’T QUITE GAUGE REACTION: We doubt we’re alone in our expectation for soft guidance since LNKD’s mgmt team is notoriously conservative with its guidance to begin with. The setup right now isn’t all that dissimilar to the 2015 guidance release, which was inline with consensus revenue and slightly lower on EBITDA, with 1Q15 missing across the board. However, LNKD crushed 4Q14 estimates, and the stock ripped. We believe mgmt gave itself enough breathing room on the 4Q15 guide, so it’s possible that the stock could pop on this print as well. Then again this isn't 2015, and LNKD’s recent outperformance suggests expectations are rising into the print. We're debating whether to pull the trigger on the short before LNKD reports on Thursday.

As a reminder, we will be hosting our quarterly Internet Best Ideas call this Thursday at 1pm EST. In the interim, let us know if you have any questions, or would like to discuss further.

Hesham Shaaban, CFA@HedgeyeInternet

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02/02/16 01:07 PM EST

This Market Indicator Is Predicting a Crash

During this brief excerpt from The Macro Show, Hedgeye CEO Keith McCullough highlights how two consecutive quarters of negative profit growth (we’re currently in the second) always leads to a stock market decline of 20% or more.

"Too bad both the Draghi devaluation move (and the Japanese negative rates one) only gave those stock markets 2-day rallies; straight down again for the DAX, IBEX, and MIB Index (all are in #crash mode with Spain leading the draw-down at -27.4% from its 2015 bubble peak) #EuropeSlowing"

It gets worse.

Add central banker egos to the laundry list of quickly deflating assets. Unfortunately for our omnipotent, un-elected central planners, they are slowly arriving at the difficult realization that they are incapable of arresting economic gravity.

Equity markets are spooked.

Here's Germany...

Meanwhile, over in Britain...

How about Spain?

One thing is becoming increasingly clear with each passing day... Reality is confounding global central planners.

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